SAMPLE FINAL EXAM PAPER 2

You should be able to complete this paper in 2 hours.

Question 1

Bread Basket Pty Ltd was equally owned by Daley Bread and Whyte Bread, two
brothers. On 1 July CY the brothers had bought out their two sisters who had owned the
other 50% of the company.
The company operated 3 bakeries which sold bread and pastries. In addition to sales over
the counter the bakeries ran accounts for a number of restaurants. Accounts were sent out
after the end of each month and were usually paid within a fortnight.
The company had a net profit for the year of $250,000 after the following income and
expenses were taken into account:

Income $
Cash received 930,000
This included $22,000 which was outstanding from the
previous year. Outstanding accounts for the current year were
$35,000.
Dividends received:
25 August CY National Bread Delivery Pty Ltd
20,000
Franking credits attached - $5,000
15 April CY Flour Manufacturers Pty Ltd 15,000
Franking credits attached - $6,429

Expenses
Accounting fees
Bank fees
Donations to Red Cross and Amnesty Australia
Interest. Interest on business loans totalled $1,500 per month
and were paid monthly until 1 March CY when 6 months
interest was prepaid.
Legal expenses:
Retainer
Lease of factory premises
Borrowing expenses for 6 year loan taken out on 30 November
CY. Interest on this loan was capitalized so there were no loan
repayments in the current year for this loan.
Provision for annual leave and long service leave
Purchase of materials
Travelling expenses:
Daley Bread traveled to a Small Business Conference in
Sydney. His wife traveled with him and attended some of the
social functions organised by the conference organisers.
Daley’s costs were 70% of the total expenses paid by the
company. The remainder related to his wife.
Wages to staff
Superannuation for staff

Notes:
Actual leave taken by staff was $93,000.
Purchase of new office on 1 June CY for $340,000. The building had been constructed
on 1 April 2003 at a cost of $100,000.

Write off of bad debt of $2,800 on 15 June CY. The debt arose from sales to a restaurant
in the previous year. The restaurant had gone out of business and there was going to be
no return to unsecured creditors.

The following PAYG (Instalments) or refunds received were paid or received during the
year:
$
th
28 July CY 4 instalment of PY tax 3,200
28 October CY 1st instalment of CY tax 15,800
30 November CY refund of PY tax 840
28 February CY 2nd instalment of CY tax 14,200
28 April CY 3rd instalment of CY tax 16,800
28 July FY 4th instalment of CY tax 23,000

The company paid two dividends during the year. The first totalled $35,000 and was
franked to 100%. It was paid on 1 July CY. The second dividend was paid on 1
December CY. The dividend totalled $60,000 and was franked to 30%. The balance in
the franking account at 30 June PY was a debit of $2,000 which was paid on 28 July CY.
Required:
Using the reconciliation method, calculate the taxable income and the net tax payable of
the company for the year ended 30 June CY assuming the company wished to minimise
it’s taxable income but did not wish to use pooling for depreciation purposes and did not
wish to use SBE elections. Treat them as a non BRE

Set out the franking account for the company for the current year including any franking
additional tax or franking deficit tax which may be payable.
Question 2

The Carmichael Family Trust commenced in 1990 when it was settled by a family friend.
The trust has a number of investments and also operates a business. The trustees had
employed a full-time manager who managed the business and one full-time staff
member. The income and deductions for the current year are as follows:

Income
Dividends from a number of companies 150,000
Franking credits attached to these dividends 90,000
Unfranked dividends 110,000
Business income 280,000
Interest 36,000
Sale of a factory building which had been rented out. The
building had been sold on 1 July CY. Commission on sale was
$7,500. It had been bought on 1 July 5 years previously for
$230,000. It had been constructed on 1 August 1995 for
$190,000. The trust completely repainted and rewired the
property at a cost of $15,000 immediately after purchase. Stamp
duty on purchase was $5,200. (Do not calculate the Division 43
deduction for the one day of ownership in the CY).

Expenses
General operating expenses of the business
Provision for annual leave
Salary to Summer Carmichael, one of the beneficiaries who
didn’t receive any distributions from the trust but worked in
the business during her university holidays

Notes

Leave taken by the Manager and the staff member was $20,000.

On 10 November PY the Manager had launched a takeover of a business. The takeover

attempt cost $22,000 but was unsuccessful.

The net income of the trust was distributed as follows:

Capital gains to an associated family company. The company also received dividends
from other companies. These totalled $30,000 with franking credits of $10,000.

All the franked dividends to Jenny MacNeil. Jenny also has her own business from
which she had net business loss of $60,000.
$730 of the unfranked dividends to Sam Ferguson (15 years old). Sam also has $3,000
interest from a bank account started by his grandparents the day he was born and $28,000
from the deceased estate of his great aunt. The trustee of the great aunt’s deceased estate
had paid tax of $1,625.50 on this income.

Brian Baird (17 years old) is entitled to the interest which is to be accumulated until he
turns 18 years of age. If he should die before turning 18 the accumulated funds will be
donated to a charity selected by the settlor in the trust deed. In the current year the
trustee spent $25,000 buying Brian a car when he turned 17. Brian also earned $10,000
from his part-time job and $14,000 interest from funds left to him when his great aunt
died some years ago.

Any remaining income was retained by the trustee.

Required:

Calculate the Division 6E net income of the trust, set out income excluded from the
Division 6E net income, calculate the taxable income (if any) of each beneficiary and the
net tax payable by each beneficiary or the trustee. Explain and state the section numbers
under which the Trust income will be assessed.
Question 3

Fred (70% partner) and Ginger (30% partner) were partners in a dance studio called
Dancing on Air which qualified as an SBE. They owned their own premises which they
had bought in the previous year for $650,000. The building had cost $230,000 when it
had been constructed in June 2003.

Income and expenses for the current year are as follows:

Income $
 Income from dancing classes. Some students had private
lessons for which they paid weekly but most students paid in
advance for a term’s fees. At 30 June CY $150,000 in fees
for term three which was to commence on 24 July FY had
been received. Refunds were offered up to one week before
the classes commenced.
 Lease premium received from lessees who had leased a
portion of the premises.
 Rent from tenants
 Insurance payout for loss of earnings from the business when
the former building was damaged in a storm.
 Insurance for replacement of damaged portion of former
building in the storm

Expenses
 General operating expenses. This included insurance,
motor vehicle expenses, telephone and electricity
expenses 200,000
 Bad debt written off on loan to a former employee5,000
 Interest on capital to partners. $10,000 to Fred and
$8,000 to Ginger
 Interest paid on loan from Ginger to assist in purchase
of new studio 33,000
 Purchase of new coffee machine on 15 June CY. It had
an effective life of 4 years. 890
 Repair to new studio to repair leaks in the bathrooms.
The leaks were not obvious when the building was
purchased last year but were discovered during the
current year. 3,200
 Repair to premises as a result of a tap left on in the
bathroom which flooded part of the premises 5,100
 Superannuation for staff 13,500

 Superannuation for Fred 20,000

  Superannuation for Ginger 20,000
 Wages – staff 150,000
 Wages – Fred 120,000
 Wages – Ginger 100,000

Notes:

The closing adjustable value of the general pool at 30 June PY is $183,000.

Required:

(a) Calculate the net income of the partnership. Uniform capital allowances must be
shown on the appropriate schedules.

(b) Calculate the taxable income by each partner.